When A Founder Resigns: Is It A Bad Sign?

Back on January 17, Yahoo! co-founder Jerry Yang announced he would be leaving the company after nearly two decades. By a fairly wide margin, the market opinion was that he was hindering Yahoo's ability to kick start growth, and recover from what has so far been a losing battle against newer Internet darlings such as Facebook, Google and Twitter. (For related reading, see Successful Companies That Improved With New Leadership.)

It remains to be seen whether the removal of Yang from Yahoo's helm and board of directors will end up helping the company regain its competitive edge. Unfortunately, it does look like the retirement or removal of a co-founder is typically a bad sign for a company. Below are three examples where company performance suffered after a founder or co-founder left. In fact, in each of these cases, company conditions turned so grim that the founder had to return to help the company recover.

Dell Computer After a period of stellar growth that saw Dell computer grow, from founder Michael Dell's dorm room into one of the largest computer makers in the world, Mr. Dell retired in 2004 confident that his firm would continue to dominate the hyper-competitive market for computer hardware. As it turns out, the share price peaked in 2005 (not counting the irrational period at the height of the dotcom bubble in March 2002) after Dell left, and has yet to recover to these levels.

Dell's stock bottomed out at around $10 per share in March 2009, which coincided with the height of the credit crisis and almost with Dell's return in the middle of 2008, to return his company to its former glory. Since then, he has worked overtime to diversify into services, servers and lessen Dell's reliance on computer hardware.

Starbucks Coffee shop powerhouse, Starbucks, experienced a similar trajectory to Dell as it grew to dominate the retail market for serving coffee and related beverages, food and supplies. Company founder Howard Schultz ran the company as CEO from 1987 to 2000. In 1981, Schultz discovered the potential of scaling the Starbucks store base, which was founded in 1971 in Seattle, across the United States and the rest of the world.

In a now-famous letter to employees that was posted on Starbucks' website in 2008, Schultz announced he was retaking the position of CEO to stem what he saw as a reckless expansion of the concept, the loss of its status as an intimate coffeehouse and competition from the likes of Dunkin' Donuts and McDonald's. This followed after a 50% decline in Starbucks' share price and negative sales at existing stores, which was the first time in its history that store trends turned definitively negative. As with Dell, the return of Schultz has appeared to revive the Starbucks concept and its competitive edge. (For more information, read Competitive Advantage Counts.)

Apple In perhaps the clearest illustration of how the departure and subsequent return of a company founder can positively impact a company, Steve Jobs returned to Apple in 1997 to sow the seeds of one of the more impressive corporate comebacks in history. Jobs co-founded Apple in 1976 and revolutionized the personal computer industry with the creation of the Macintosh. He left Apple after a power struggle in 1985 and returned in 1997, following a period where Windows-based PCs grew in dominance in the industry and almost completely eliminated the former dominance of Apple's Mac.

The rest, of course, is history, and is followed in much more detail in the 2011 book "Steve Jobs" by Walter Isaacson. Within a few years, Jobs released the iPod to revolutionize the music industry. It was followed by the stunning successes of the iPhone, iPad and other related products that help consumers view and manage multimedia through computers, the Internet and other hardware devices. Its stock price is up more than 7,800% in roughly the last decade.

The Bottom LineThere are, of course, examples where a company founder left and their company continued to grow successfully. McDonald's, Wal-Mart and IBM are examples. There are also arguments to be made that even the best and most motivated company founders cannot always fend off shifting market conditions and the advance of competitors. This is definitely true in the fast-moving technology industry. Overall though, as the above examples demonstrate, the argument can certainly be made that companies are better off with their founders leading the way forward. (For additional reading, check out Inspiration: Young Companies By Young Founders.)